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How to be a success in VUCA world? Let us look at the cases of a well-known IT company to learn how to do that

How to be a success in VUCA world? Let us look at the cases of a well-known IT company to learn how to do that
How can an IT business run in VUCA world, enter global markets and struggle against entropy as an inevitable part of the development process?
Международная программа «Глобальный Вызов - Искусственный интеллект для ЦУР»
г. Москва, тер. Сколково инновационного центра, ул. Луговая, д. 4
+ 7 495 956 00 33
15.02.2021

How can an IT business run in VUCA world, enter global markets and struggle against entropy as an inevitable part of the development process? Sergey Shilov, the President and founder of Digital Economy League, is answering this question in his interview to Sergey Dutov, the initiator of the “Global Challenge - Artificial Intelligence for Sustainable Development Goals” program, and Director of Business Development and Industrial Partners of the Skolkovo Foundation. The Group of Companies is providing support with ‘going digital’ to the major players in Russia (VTB, Sber, Vympelcom, Rostelecom, Ministry of Internal Affairs) and in the EU markets (Mercedes-Benz)

It is quite obvious that the world is rapidly changing and becoming increasingly unstable, uncertain, complicated and ambiguous. The abbreviation VUCA (Volatility, Uncertainty, Complexity and Ambiguity) was introduced in 1987 by Warren Bennis and Burt Nanus in their leadership theories, as a response to those processes. The new input data drastically change the business environment, hinder forecasting and require the leaders to offer innovative and efficient ways to solve previously unknown problems. Let us look at each of VUCA world challenges and learn how to cope with them, using real-life cases of Digital Economy League as examples.

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How to run an IT business in VUCA world

1. Complexityis a multitude of elements without clear relations, multi-level challenges and consequences, impossibility to choose a single solution which would be correct.

When my business started to grow I faced a problem: how to make any arrangements with talented personalities you want to work with. It took me 5 years to find a solution: I tried many ways of conducting business and the correct solution was to use a personal approach. I made a list of all possible options to arrange our cooperation and I discuss every option with each of them. Some choose share-based participation and I buy their shares following clearly defined KPIs, while others want profit-based participation. Some well-motivated staff members with good entrepreneurship skills were interested in corporate spin-offs (separation of one or several independent legal entities from a parent company which continues to run its operations).

Maria Vozhegova who is currently the head of Gartner’s office in Russia, chose the model of joint-venture with equal representation as the most suitable for her. The same was the choice of Dmitry Potapov, the League’s senior partner, who had previously been making his career in Oracle, in California. Some time later the earlier arrangements changed: Maria sold her business to me, and we continue working with Dmitry, but on different terms. This is a good example of the fact that ability to discuss, to talk and listen to each other is vital, during many years, if the circumstances and people around you change.

Therefore, it is important to be open-minded, transparent, able to listen and hear what people are trying to say to you, accept their ideas and proposals, conduct negotiations and be ready to revise your decisions.

2. Volatilitystands for rapid changes, unpredictable changes, impossibility to identify the cause and effects due to too unpredictable progression of events.

In my experience this tends to be a case when the customer completely changes its management structure, followed by the changes in strategy and plans. Some of the customers we are doing business with, tend to have such ‘resets’ quite often, and always unexpectedly. Imagine: you have your contracts, plans, contacts, well-established operational scheme, and then the ‘wide-open door’ suddenly gets shut, and the plans do a 180. In fact, you’re facing a challenge of attracting the customer once again.

Here there’s one crucial thing - you have to be psychologically ready to deal with the changes like these, and to the high level of stress. Otherwise, you won’t be able to accept the new reality and are likely to treat this reality in an aggressive and inadequate manner. So the summary of this case - be always ready to unexpected changes and new rules of the game. You have to accept and love the team of people you don’t know yet, and do your best to help them in solving the tasks they may be instantly facing. You do need to understand why a customer takes certain decisions, be quick to change your plans and offer relevant support. It may be the way to reach even brighter opportunities than you had before.

3. Ambiguitystands for the lack of clear understanding even with the large amounts of information, rapid irrelevance of historical forecasts and previous experience, heterogeneity and inconsistency of information.

An example of this can be a corporate structure of Digital Economy League, which changes constantly. 15 years ago many believed that having offshore companies as business owners can help cut tax expenses. Others stated that such an offshore model was too much of a risk, which was not worth it.

Despite having my degree in math, I tend to use my intuition to make the right decision - I take controversial rules, read them and think them over, then I put everything away and switch to physical exercises - do jogging or skiing. After that the decision becomes an easy choice: you should rely on your intuition and not hesitate to proceed.

However, this method is not a ‘silver bullet’: initially you take one decision, after some time you can see all the drawbacks and try the new option. This is an ever-lasting process: the legal form of my business has been changing for all 20 years of its existence, and in our ambiguous world it’s typical.

In today’s world an entrepreneur should be able to change as well. Reorganization of my own management model is my best entrepreneurial decision! I started as an ordinary start up leader with quite a rigid approach, which proved to be efficient at the early stages of business growth, where you need to be heavy-handed and able to rapidly make unpopular decisions, and currently I’ve become a ‘consolidating’ leader. I’ve built a 4,000-strong team and assigned most of my tasks to my partners who handle them independently and enjoy my full trust and support. Today Digital Economy League includes about 20 partners with profit-based participation using clear and transparent KPIs. We’ve been using this model since 2011 and it is still relevant.

4. Uncertainty— stands for the deficit or lack of necessary information.

Many entrepreneurs face this problem when they enter a new market or launch an innovative product, as they simply do not understand if the audience is ready to accept this product. Many years ago I used to run a business of developing medical products to be offered at the European market. I know too little about medicine, so building a team to develop this type of products for EU and US markets was a stupid and risky undertaking. However, the project was a success, and the key factor in the cases like this is the ability to ask the right questions, and then you’ll get the right answers. When we were entering the EU market, we listed numerous questions which I, our architects, programmers, and analysts had, and we were preparing consolidated questions - for example, which business model is used by this Swiss clinic, which processes they have, what is important for their managers. To answer such questions, you need to talk to your customers, collect all the information and analyze it to make the decision.

If you are going to enter an overseas market, you have to understand whether you business is ready for that, and what type of environment you’ll be facing in this location. Nobody is waiting for you there, that’s quite likely.

Overseas markets - when and how to enter

Judging from experience, I can say that you company is only ready to run business abroad if:

  • you have a finished product and clear understanding of the business model and of the product you offer to your clients;
  • you have sustainable position at least in the market of one country, for example, in Russia
  • you have a good team of managers, who are motivated to spend much of their time and energy to develop your business in a certain geography: despite globalization, local environment still matters;
  • the entrepreneur speaks the foreign language and is not afraid of new challenges: building business in a foreign country, without personal links and support, among people speaking a different language and having a different cultural code usually takes more time and efforts than in your homeland.

Here I offer some general findings on the EU, US and Asia’s IT markets, which I made based on the experience gained by Digital Economy League. Europe’s IT market is noble, saturated and highly competitive, even in the newly found niches. This means you need the right partners - this is ‘smart’ money, i.e. strong local companies with well-developed links.

In the USA the competition is even tougher, and the commercial IT market is immense there. Most private companies have very strict procurement regulations. To be accredited for participation in a tender alone, an average US company should spend a year. Startups have very few opportunities to work with governmental companies: you need a great deal of money to pay to an army of lawyers. Otherwise, you may be brought to court and most likely lose.

In Asia the competition is not so tough, the administrative barriers are low, and there are plenty of opportunities and a great potential for growth. Together with our major clients we entered those markets, providing automation solutions for Sber’s and Vympelcom’s offices in South-Eastern Asia. Successful completion of their projects gave us an advantage for our own development in the future. However, it also became evident that without strong local partners we won’t be able to work there, the same as in Europe. These strong partners tend to have strong positions during negotiations. They know how to build the relationship in a way that after some time you won’t be a partner any longer, and turn into a hired manager. Still, this won’t prevent the business from growing. Working with Asian partners you have to take into account their different mentality.

In short, if you’re ready to enter overseas markets - don’t hesitate to try. Remember that entropy is an inevitable stage of the company’s growth and development.

How to cope with entropy

Usually a company accumulates both positive and negative experience. Negative experience often acts as inhibitor in finding new opportunities for business. Social lifts for your staff are a way to prevent the accumulated experience from becoming an inhibitor. The company should give to young and talented people all opportunities for career development, establish internal training programs. This allows to have a combination of expertise and energy of youth, and this is what brings extra freshness to produce always good outcome. Even in this volatile, uncertain, complicated and ambiguous world.

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The ecosystem for global development
and interaction of Russian AI projects